By Mark John and Andreas Rinke
PARIS/BERLIN (Reuters) - President Francois Hollande's insistence that the EU executive can't "dictate" reforms to France has outraged Angela Merkel's conservatives, hours before the German leader was due in Paris for talks.
Unveiling reform recommendations for the 27-nation European Union on Wednesday, the European Commission urged Hollande to rein in public spending, revamp pensions and cut labor costs in return for a two-year reprieve on budget deficit cuts.
French officials broadly welcomed the recommendations as being in line with reform plans already sent to Brussels. But Hollande, who was on a trip through rural France with reporters, warned the Commission not to overstep itself.
"The European Commission cannot dictate what we should do, it can only say that France must balance its public finances," said Hollande, who later returned to Paris to prepare for Merkel's visit to the French capital on Thursday.
With concern growing in EU economic powerhouse Germany that the euro zone's second largest economy is slipping deeper into decline, Merkel allies immediately warned that France's attitude could undermine efforts to bolster the euro zone economy.
"It can't work when a big country like France said it can do what it wants to do," Michael Fuchs, deputy parliamentary leader of Merkel's Christian Democrats.
"If a country in the EU and euro zone thinks it needn't keep promises, that is worrying," he added.
Norbert Barthle, the party's spokesman on budgetary matters, accused Hollande, whose poll ratings have fallen faster than for any modern French president as the economy has slid into recession, of playing to a domestic audience.
He said the EU Commission had already been too generous in giving France a further two years to bring its budget deficit below the bloc's 3 percent ceiling after Paris conceded it would miss the target this year.
"France won't be able to bank on such indulgence again," he said.
Paris says it expects to bring its deficit back under the upper limit well in time for the new 2015 deadline and is already preparing to reform France's generous pension system.
Hollande, who is particularly wary of upsetting negotiations on the issue, said earlier this month the French should expect to have to work "a bit longer".
He is looking more towards a possible increase in the period of pension contributions that French workers must make rather than any increase in the statutory retirement age.
Yet the Commission specifically listed an increase in the retirement age as a measure that France should examine, and warned it not to do anything which would increase the cost to its companies - remarks which had French officials bristling privately after they emerged.
RELATIONS "AS NORMAL"
Merkel and Hollande are at pains to insist that Franco-German cooperation, one of the historic drivers of EU integration, is working well.
"Our relations are very regular, very normal and very efficient," a diplomatic source in Hollande's office said.
"We may start from different positions but each time we work it out," he added.
Yet Merkel's visit, which will end with a news conference followed by a private supper, comes with Paris and Berlin also at odds over whether the EU should in coming days risk a trade dispute with China by imposing duties on its solar panel exports - a move Germany has opposed.
The Paris talks are aimed at fleshing out a joint proposal on greater euro zone cooperation which Hollande and Merkel have promised for next month's EU summit.
Few details have yet to emerge on the plans, and officials on both sides have privately played down expectations of any major European policy initiative before Germany's September election where Merkel will seek to win a new term.
(Editing by Ruth Pitchford)